banks with at least $100 billion in assets. The heightened requirements will apply to all U.S. Regulators estimate the new capital rules will increase aggregate common equity tier 1 capital requirements by about 16% over currency levels. While much of the market has rallied so far this year, the SPDR S&P Bank ETF (KBE) is down 6.3% year-to-date. Rising interest rates led to huge losses on regional banks’ bond portfolios and the failures of First Republic Bank, Silicon Valley Bank, Signature Bank and others in early 2023. The new regulations are aimed at addressing some of the issues that contributed to a banking crisis and the failures of a handful of U.S. regulators unveiled a new set of capital requirements for large U.S. Wall Street analysts are expecting earnings to stabilize in the second half of 2023, projecting a 0.2% increase in S&P 500 earnings in the third quarter and another 7.5% growth in the fourth quarter. The energy sector has reported a 52% year-over-year drop in earnings so far in the second quarter and is battling difficult year-over-year comparisons. The consumer discretionary sector is reporting the highest earnings growth of any sector so far in the second quarter, with EPS up more than 36% from a year ago. This puts the stock market on track for its biggest earnings decline since the second quarter of 2020-in the wake of the last U.S. S&P 500 companies that have disclosed quarterly results to date have reported a 7.3% year-over-year decline in earnings per share in the quarter. Second-quarter earnings season kicked off in mid-July, and results have been better than analysts had expected. gross domestic product grew 2.4% in the second quarter, marking the fourth consecutive quarter that the economy has expanded by at least 2%.Ī year of decent growth hardly paints a picture of a lurking recession, although the current crop of corporate earnings reports also shined a cautious light on the next few months. Which angle should an investor believe? GDP helps inform the outlook: U.S. Yet the unemployment rate remains historically low at just 3.6%. Nevertheless, the pace of job growth has also trended steadily lower over the past two years. economy added 209,000 jobs in June, continuing the relatively strong showings in this key monthly data series. The New York Fed Recession indicator suggests there is a 67.3% probability of a recession sometime in the next 12 months.īut so far, the most convincing indicator of a soft landing has been the resilience of the U.S. economy can avoid a recession despite all the rate hikes.Įconomists from Bank of America, Vanguard and JPMorgan Chase still see a high likelihood of a U.S. That’s the term market participants use to describe the possibility the U.S. The next couple of months will determine whether or not the Fed can engineer a so-called “soft landing” for the U.S. 24-26 for any hints from Federal Reserve Chair Jerome Powell about the outlook for inflation, the U.S. Investors will be closely watching the Jackson Hole Economic Policy Symposium on Aug. “It is one thing to applaud core inflation is edging lower, but another for the Fed to declare victory when inflation stubbornly remains double the Fed’s desired long-term goal of 2%,” she says Doves are Fed officials who want lower rates, while hawks are officials who prefer more rate increases. “Core PCE inflation came in at 4.1% from a year ago and under a consensus estimate for 4.2% still won’t settle the dove/hawk debate at the Fed,” Krosby says. The core personal consumption expenditures price index, the Fed’s preferred inflation measure, was up 4.1% in June. She warns that investors shouldn’t be too quick to cheer the Fed’s progress on inflation. Quincy Krosby, chief global strategist for LPL Financial, sounds a cautious note on this kind of market exuberance. Currently, professional investors are betting that there is only a 32% chance that the Fed will raise interest rates again by November, according to CME Group. This put the federal funds target rate range at 5.25% to 5.5%, its highest level in 22 years. Stocks rallied in July despite the FOMC delivering yet another quarter-percentage-point rate hike. The consumer price index gained just 3% year-over year in June, down from peak 2022 inflation levels of 9.1%, and not far at all from the Fed’s 2% long-term target. The Fed has made tremendous progress on the inflation front so far this year, and many investors are optimistic it has finally reached its terminal interest rate of the current cycle. Another Fed Pause Could Be Right Around the Corner
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